Friday, June 01, 2007

CIBC Q2 2007 Earnings

  
Analysts' ratings and target prices for CIBC:

• BMO Capital Markets maintains "outperform," 12 month target price is $110

• Blackmont Capital maintains "hold," 12 month target price is $103

• Credit Suisse downgrades from "outperform" to "neutral," 12 month target price is $112.

Credit Suisse notes that CIBC has reported its Q2 2007 operating EPS above consensus, with retail bank earnings rising 25% YOY due to a lower than expected tax rate and an increase in the contribution from FirstCaribbean. The probability of CIBC hiking its dividend or initiating a share buyback program in the near term is high, Credit Suisse adds. The downgrade to "neutral" reflects the elimination of the historical valuation discount, issues at the retail banking unit, and limited upside to earnings expectations.

• Desjardins Securities maintains "buy," 12 month target price is $110

• Dundee Securities downgrades from "market outperform" to "market neutral," 12 month target price has been reduced from $119 to $111.

According to Dundee's research note, the core EPS of $1.95, while above consensus, cannot be claimed to be of the highest quality. CIBC's loan loss provisions of $190 million was higher than Dundee's estimate of $150 million; capital market revenues declined by 12%. As for the bank's $33-million increase in expenses, it's due mostly to the inclusion of FirstCaribbean for a full three months; Dundee is optimistic that CIBC's earnings would receive a positive boost, if it could achieve its target of eliminating expense growth.

• National Bank Financial downgrades from from "outperform" to "sector perform," 12 month target price is $107

• RBC Capital Markets maintains "top pick," 12 month target price is $114

• Scotia Capital maintains "sector perform," 12 month target price is $115

• TD Securities maintains "hold," 12 month target price is $106.00

• UBS mainatains "neutral," the target price has been raised from $113 to $114.

UBS notes that CIBC’s share price has appreciated significantly by 30% over the last year, reflecting improved earnings mix, risk management, and cost structure. CIBC has resumed its share buybacks, which is expected to bolster the bank’s bottom-line going forward. CIBC's dividend growth is likely to be fairly aggressive going forward, as the bank is aiming to increase its payout ratio, UBS adds. The EPS estimate for 2007 has been raised from $8.13 to $8.17.
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Scotia Capital, 1 June 2007

Q2/F07 Earnings Increase 26%

• Canadian Imperial Bank of Commerce (CM) reported cash operating earnings of $1.95 per share relatively inline with our estimate of $1.96 per share but above the street estimate of $1.91 per share. Earnings growth was strong year over year at 26% but earnings declined 11% sequentially reflecting slowing earnings momentum. The bulk of the bank's cost saves have been realized and revenue growth is not fully compensating.

• Cash ROE was 24.9% versus 28.1% in the previous quarter and 24.3% a year earlier. Return on RWA assets was 2.17% versus 1.87% a year earlier.

• Reported earnings were $2.29 per share which included the following special items, an $80 million or $0.24 per share tax recovery related to CIBC Retail Markets, a $24 million ($17 million after-tax or $0.05 per share) general reversal, an $11 million or $0.03 per share reversal of a future tax asset and a $10 million ($7 million after-tax or $0.02 per share) mark-to-market impact of corporate loan credit derivatives.

• CIBC World Markets led earnings growth at 48% with CIBC Retail Markets increasing 14% (excluding $80 million tax recovery and the impact of the FirstCaribbean acquisition).

Retail Markets Cash Earnings Increase 14%

• Retail Markets Q2 cash earnings increased 14% (excluding $80 million or $0.24 per share tax recovery and the impact of the FirstCaribbean acquisition) driven by volume growth in cards, deposits and mortgages partially offset by spread compression in lending products.

• Revenue growth excluding the impact of the FirstCaribbean acquisition was modest at 3.2%. Management indicated that growing revenue is a major focus for the bank and that retail revenue growth rates are expected to converge with industry retail revenue growth rates in the upcoming quarters.

• Retail loan losses remained relatively unchanged at $182 million from $180 million a year earlier.

• Deposit and payment fees remained flat at $193 million unchanged from the previous quarter versus $187 million a year earlier. Securitization revenue was $136 million versus $129 million in the previous quarter and a year earlier. Card fees were $60 million compared with $70 million in the previous quarter and $52 million a year earlier.

• Mutual fund revenue increased 7% YOY to $216 million from $201 million a year earlier. Mutual fund assets (IFIC) increased 9% to $50.8 billion. Investment management and custodian fees increased 10% to $130 million.

Canadian Retail NIM

• Canadian retail NIM improved 8 bp sequentially but declined 11 bp from a year earlier to 3.39%.

Retail Market Share Losses Primarily in Credit Cards

• CM continued to lose market share in credit cards this quarter. Credit cards outstanding market share declined 40 bp sequentially and 50 bp year over year to 17.6% while credit card purchase volumes market share declined 20 bp sequentially and 190 bp year over year to 24.1%. Consumer loans (excluding credit cards) market share declined 20 bp sequentially and 80 bp year over year to 9.4%.

• CM experienced small gains in residential mortgages and consumer deposits market share. Residential mortgage market share increased 10 bp sequentially and 20 bp year over year and consumer deposits market share increased 10 bp sequentially and 30 bp year over year.

CIBC World Markets Earnings Strong : Earnings Up 48%

• CIBC World Markets cash earnings increased 48% to $179 million driven by strong investment banking activity, loan growth and market at risk asset growth.

• Investment banking and credit product revenue increased 108% year over year to $247 million. Loans increased 19% with market at risk assets increasing 33%.

• Loan loss provisions were $4 million this quarter versus recoveries of $16 million a year earlier.

• Revenue increased an impressive 20% with non-interest expenses increasing 4% for high operating leverage of 16%. Revenue growth was driven by strong capital markets revenue and slightly higher merchant banking revenue.

Trading Revenue Relatively Weak

• Trading revenue (excluding the impact of VIEs) was relatively weak at $176 million compared with $245 million in the previous quarter and $186 million a year earlier.

• Equities trading revenue was weak in the quarter at $75 million versus $104 million in the previous quarter and $86 million a year earlier.

Capital Markets Revenue Solid

• Capital markets revenue was solid at $404 million versus $414 million in the previous quarter and $367 million a year earlier.

• Underwriting and advisory fees increased 30% to $178 million while commissions on securities transactions declined 2% to $226 million.

High Security Gains

• Security gains were $119 million or $0.23 per share in the quarter versus $0.09 per share a year earlier and $0.27 per share in the previous quarter.

• In addition to security gains, CM recorded a loss on equity-accounted investments and limited partnerships of $16 million versus a gain of $48 million a year earlier.

Unrealized Surplus

• Unrealized security surplus increased to $474 million (including limited partnerships) versus $351 million in the previous quarter and a deficit of $8 million a year earlier.

Operating Leverage 2%

• Revenue growth was 9% (4% excluding FirstCaribbean) driven by higher net security gains and net unrealized gains in the designation of certain fair value hedges. Non-interest expenses increased 7% to $1,967 million.

Productivity Ratio

• The productivity ratio in the quarter was 63.2% versus 61.4% in the previous quarter and 64.4% a year earlier.

Loan Loss Provisions Increase 17%

• Specific LLPs increased 17% to $190 million or 0.47% of loans (excluding a $24 million general reversal) from $163 million or 0.46% of loans a year earlier.

• Credit card losses have increased over 60 bp in the past 6 months to over 400 bp from approximately 340 bp in Q4/06.

• We are increasing our 2007 LLP estimate to $650 million or 0.39% of loans from $600 million or 0.36% of loans due to higher credit card losses. Our 2008 LLP estimate is unchanged at $700 million or 0.41% of loans.

Impaired Loans

• Gross impaired loans (GILs) were $981 million in the quarter versus $991 million in the previous quarter and $817 million a year earlier.

• Net impaired loans were negative $535 million versus negative $565 million in the previous quarter and negative $787 million a year earlier.

Loan Formations - Modest and Stable

• Gross loan formations were $370 million this quarter versus $360 million in the previous quarter and $385 million a year earlier. Net loan formations were $210 million versus $253 million in the previous quarter and $146 million a year earlier.

Tier 1 Ratio

• Tier 1 ratio declined to 9.5% this quarter versus 9.6% in the previous quarter and but increased from 9.2% a year earlier.

• The common equity to risk-weighted assets (CE/RWA) ratio was 8.7% compared with 8.6% in the previous quarter and 7.8% a year earlier. Total risk-weighted assets increased 10.5% to $127.2 billion versus $115.1 billion a year earlier. Market at risk assets increased 33% to $5.2 billion from $3.9 billion a year earlier.

CIBC Announces Normal Course Issuer Bid

• On April 27, 2007 CM announced a normal course issuer bid to commence on or about May 2, 2007. CM intends to repurchase up to 10 million shares or approximately 3% of its total float for cancellation.

Recommendation

• Our 2007 and 2008 earnings estimates remain unchanged at $8.20 per share and $8.80 per share. Our 12-month share price target is unchanged at $115. Our share price target represents 14.0x our 2007 earnings estimate and 13.1x our 2008 earnings estimate.

• We maintain a 2-Sector Perform rating.
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Financial Post, Duncan Mavin, 1 June 2007

After focusing on slashing costs for the past 18 months, Canadian Imperial Bank of Commerce may be ready to start spending more cash on acquisitions to expand revenue.

Gerry McCaughey, CIBC's chief executive, was charged with steadying the ship when he took over the bank in 2005.

But with the recent acquisition of a bigger stake in First- Caribbean International Bank under his belt, Mr. McCaughey has signalled the bank is ready to change course and look to acquisitions to expand overseas.

"With the FirstCaribbean acquisition now complete, CIBC will consider further opportunities for international growth, both through organic expansion at FirstCaribbean and additional strategic acquisitions," he said.

Since December, CIBC has raised its stake in FirstCaribbean to 91.5% from 49.5% for a total cost of $1.1-billion.

The Caribbean bank contributed about $38-million to CIBC's second-quarter results announced yesterday.

The bank offered scant details about likely acquisitions.

But Mr. McCaughey is particularly careful when it comes to the wording of his public statements and his comments yesterday will likely be seen as an indication of his intentions to step up the bank's hunt for revenue growth.

Indeed, revenue-generating acquisitions would go some way to waylaying fears among analysts that the bank's cost-cutting focus has stymied growth.

The bank reported a 38% increase in second-quarter profits to $807-million from $585-million in 2006, but some analysts were unimpressed.

UBS Investment Research analyst Jason Bilodeau said "the platform has risen to a higher level of earnings generation, but excluding acquisitions, the core pace of growth in retail is unclear at this point."

Blackmont Capital analyst Brad Smith said earnings per share of $1.95 fell short of his forecast of $1.98 because of "weaker-than-expected revenues in both the retail and wholesale operating segments.

Total revenue increased 10% in the second quarter to $3.1-billion from $2.8-billion in the year ago period.

The bank's retail banking group reported revenue of $2.12-billion up from $1.97-billion last year.

The 10% increase was due to volume growth, lower taxes and the acquisition of a controlling interest in FirstCaribbean, the bank said.

CIBC World Markets' revenue increased to $726-million from $607-million in the same quarter of 2006. Net income for the group was up 76% to $194-million.

Mr. McCaughey was praised for reducing costs at CIBC which became a necessity after the bank took a hit of US$2.4-billion related to its involvement with Enron.

Last year the bank exceeded targeted cost savings of $250- million. Mr. McCaughey has said it is aiming to hold expenses flat to 2006 levels.

Expenses were $2-billion in the second quarter of 2007, up from $1.9-billion in the previous quarter primarily due to the inclusion of $99-million related to FirstCaribbean.
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Bloomberg, Sean B Pasternak & Doug Alexander, 31 May 2007

Canadian Imperial Bank of Commerce and National Bank of Canada, two of the country's six largest lenders, reported record second-quarter earnings as stock sales and mergers fueled investment-banking revenue.

Net income at CIBC climbed 38 percent in the period ended April 30 to C$807 million ($755.8 million), or C$2.27 a share, beating the average estimate of analysts in a Bloomberg survey. National Bank, ending its last quarter under Chief Executive Officer Real Raymond, said profit rose a better-than-expected 8.9 percent to C$233 million, or C$1.40 a share.

Canada's banks are benefiting from the worldwide surge in takeovers and booming demand for stocks and bonds. National Bank said equity-trading revenue rose 72 percent while CIBC earned twice as much in underwriting and merger-advisory fees. The gains contrast with Royal Bank of Canada, whose profit missed analysts' estimates after trading revenue fell.

``It's going to be another good year for the banks,'' said John Kinsey, who helps manage $900 million, including CIBC shares, at Caldwell Securities Ltd. in Toronto. ``Earnings are coming through nicely, and I think the dividends will all be increased again.''

Shares of Toronto-based CIBC dropped the most since August 2005 after some analysts said revenue was weak and the company met estimates only because of a lower tax rate and gains on the sale of securities. Profit was C$1.95 a share excluding one-time gains such as tax recoveries and reversals of loan losses. That compared with the C$1.91 average in the Bloomberg survey.

CIBC fell $3.47, or 3.27 percent, in trading on the Toronto Stock Exchange. National Bank shares dropped 97 cents to C$65.05.

Earnings at CIBC World Markets, Canadian Imperial's securities unit, jumped 76 percent to C$194 million. The bank ranked second in Canada for both stock offerings and mergers completed during the fiscal second quarter, according to data compiled by Bloomberg.

CIBC, which underwrote stock sales for companies including Fortis Inc. and Enbridge Inc., said revenue also was bolstered by fees from a $3.9 billion sale of commercial mortgage-backed securities.

Profit from consumer banking rose 35 percent to C$583 million. That includes C$38 million from the acquisition of FirstCaribbean, Chief Financial Officer Tom Woods said on a conference call with analysts today.

An increase in provisions for credit losses to C$166 million from C$138 million a year ago hurt net income.

Still, CIBC's was the biggest profit increase among Canadian banks this past quarter. Royal Bank, the country's No. 1 lender by assets, reported a 14 percent gain.

CIBC also said Chief Risk Officer Steven McGirr will leave the bank by July 1. Ken Kilgour, who is the executive vice president of treasury and risk management, will succeed him.

At National Bank, the largest lender based in Quebec, new CEO Louis Vachon promoted Senior Vice President Michel Tremblay to chief operating officer of consumer banking and wealth management and Vice President Jean Dagenais to chief financial officer. Pierre Fitzgibbon, the current CFO, is leaving the bank.

National Bank hired John Cieslak, formerly of with stock- exchange operator TSX Group Inc., as senior vice president of technology.

Profit at National Bank's financial markets unit, which includes trading and investment banking, climbed 32 percent to C$95 million. Earnings from consumer banking and asset management also rose, the Montreal-based bank said.

National Bank was expected to earn C$1.32 a share, according to the median estimate of 12 analysts surveyed by Bloomberg. The company, the largest publicly traded lender based in Quebec, raised its quarterly dividend for the fourth time in two year. National Bank now will pay 60 cents a share as of Aug. 1, up 11 percent from the previous dividend.

Vachon, who takes over for Raymond tomorrow, said on a conference call today that he plans to raise the dividend again in the fiscal third quarter.
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